What is a common result of underfunded liabilities in public finance?

Underfunded liabilities occur when the funds set aside to meet future obligations, such as pensions or other post-employment benefits, are insufficient to cover the projected costs. This situation can lead to a budget deficit because the government may need to allocate more funds to cover these obligations than what it has available in its budget. When liabilities are underfunded, the government might have to divert resources from other areas or increase borrowing to meet its commitments, which can result in expenditures exceeding revenues—hence creating a budget deficit.

In contrast, increased service delivery, higher tax rates, and stronger financial health are typically not outcomes associated with underfunded liabilities. Underfunded liabilities often strain a budget, making it difficult to maintain or improve services without increased funding or adjustments to other financial aspects.